You can teach a new court Mangold tricks – the horizontal effect of the Charter right to paid annual leave

Filippo Fontanelli, Senior Lecturer in International Economic Law, University of Edinburgh

On 6 November 2018, the Court of Justice of the European Union (the Court) delivered three judgments relating to paid annual leave. Some of its remarks transcend the specific topic, and touch on constitutional matters: the impact of the EU Charter of Fundamental Rights on private parties, the allocation of competences between the EU and the Member States, and the application of EU secondary law.

These cases teach a couple of lessons, and raise a wider point. The lessons are useful: first, alongside the right to non-discrimination and effective judicial protection, the right to annual paid leave in the Charter has direct effect not only in vertical disputes (ie disputes between the individual and the State), but also in horizontal disputes (ie disputes between individuals), even though EU Directives dealing with the same issue still do not in themselves have such horizontal direct effect.  Second, the Charter sometimes binds State acts in a decisive manner. This occurs rarely and, curiously, so far exclusively in disputes between individuals, when the domestic law transposing a directive is not in good order.

The wider point concerns the Charter’s application to domestic measures. In these cases, EU secondary law could not displace domestic measures, because Germany had not transposed a directive correctly. The directive’s mere existence, however, warranted the Charter’s application, and in turn enabled domestic courts to disregard German law and enforce the right to annual paid leave.

The now familiar combo “unimplemented directive plus Charter right” seems a Munchhausen trick. To justify the practice, one should go back to the Mangold case (in which the CJEU ruled that, prior to the Charter having binding force, the general principles of EU law meant that the right to non-discrimination could apply between private parties even if a Member State had not implemented a Directive), and perhaps look deeper into the difference between direct applicability and direct effect, or between a norm’s application and its scope of application. After looking back and looking in-depth, it is still difficult to see precisely how the Charter applied.

The judgments

In cases C-619/16 and C-684/16 Kreuziger and Max Planck, the facts were comparable. Messrs Kreuziger and Shimizu, respectively employed by the Land of Berlin and the Max Planck Institute, had failed to take the entire period of paid annual leave to which they were entitled. After their employment ended, the former employers denied their request to receive payment in lieu of leave. German law appeared to authorise the employers’ position that a failure to request paid annual leave automatically entailed its lapse upon termination.

The Court disposed of the Kreuziger case quickly, due to the dispute’s vertical nature (the employer was a German Land). Article 7 of Directive 2003/88 (the working time Directive) clearly confers the right to paid annual leave and, accordingly, payment in lieu for the leave not taken; the Court recently ruled on this issue in Bollacke. The Court dusted off the direct effect spiel. Since “provisions of a directive that are unconditional and sufficiently precise may be relied upon by individuals, in particular against a Member State and all the organs of its administration” [21], individuals can invoke the Directive and the judges must set aside domestic law if need be. The automatic lapse of this right upon termination of employment, without any safeguard to make sure that the employee could exercise it beforehand, violated EU law.

The reasoning of the Max Planck ruling extended further, since the main proceedings concerned a dispute between private parties. The reasoning of Kreuziger was copy-pasted: Article 7 of the Directive precludes an automatic lapse of the right to paid leave triggered by a mere failure to exercise it [40]. National courts must arrive, to the extent possible, at an interpretation of domestic law consistent with the Directive.

Failing all attempts at consistent interpretation, Mr Shimizu could not rely on the Directive alone, since “Max Planck had to be considered an individual” [65], and directives normally lack horizontal direct effect [68]. The Court thus turned to Article 31(2) of the Charter on the right to annual paid leave, noting that it entailed a clear, enforceable right, withstanding only derogations in compliance with Article 52(1) of the Charter [73]. Article 31(2) of the Charter needing no implementing act to operate, it could warrant disapplication of contrary domestic law:

74           The right to a period of paid annual leave, affirmed for every worker by Article 31(2) of the Charter, is thus, as regards its very existence, both mandatory and unconditional in nature, the unconditional nature not needing to be given concrete expression by the provisions of EU or national law, which are only required to specify the exact duration of annual leave and, where appropriate, certain conditions for the exercise of that right. It follows that that provision is sufficient in itself to confer on workers a right that they may actually rely on in disputes between them and their employer in a field covered by EU law and therefore falling within the scope of the Charter.

75           Article 31(2) of the Charter therefore entails, in particular, as regards the situations falling within the scope thereof, that the national court must disapply national legislation negating the principle [that the right to paid leave and/or payment in lieu cannot lapse automatically].

The last hurdle for the direct invocability of Article 31(2) of the Charter in German courts was the dispute’s horizontal nature. The Court recycled from its own case-law the bold suggestion that Article 51(1) of the Charter, which sets out who is bound by the Charter, is ambiguous in this respect and does not preclude individuals from relying on the Charter against each other:

76           … although Article 51(1) of the Charter states that the provisions thereof are addressed to the institutions, bodies, offices and agencies of the European Union … and to the Member States only when they are implementing EU law, Article 51(1) does not, however, address the question whether those individuals may, where appropriate, be directly required to comply with certain provisions of the Charter and cannot, accordingly, be interpreted as meaning that it would systematically preclude such a possibility.

Notably, the Court distinguishes Article 27 of the Charter on workers’ consultation (at issue in AMS) from Article 31(2) on annual leave, because the former Charter Article refers to national and EU law limits and the latter Charter Article does not. If this is the test for whether Charter provisions can have horizontal direct effect, it should be noted that most of the Charter provisions on social rights refer to national and EU limits – but most of the other provisions of the Charter do not.

73      By providing, in mandatory terms, that ‘every worker’ has ‘the right’ ‘to an annual period of paid leave’ — like, for example, Article 27 of the Charter which led to the judgment of 15 January 2014, Association de médiation sociale (C‑176/12, EU:C:2014:2) — without referring in particular in that regard to the ‘cases’ and ‘conditions provided for by Union law and national laws and practices’, Article 31(2) of the Charter, reflects the essential principle of EU social law from which there may be derogations only in compliance with the strict conditions laid down in Article 52(1) of the Charter and, in particular, the fundamental right to paid annual leave.

The Joined Cases C-596/16 and C-570/16 (Wuppertal v Bauer; Willmeroth v Broßonn) largely replicated the reasoning of the Max Planck and Kreuziger cases. Only, in the underlying disputes, it was rather the employees’ heirs seeking payment in lieu, on behalf of the deceased workers. According to the referring judge, German law provided that the right to unpaid annual leave, necessarily turned into payment in lieu upon the workers’ death, would not become part of their estates.

Building on prior case law (discussed here), the Court, besides noting the importance of the right under Article 7 of the Directive, stated that it should accrue, after the death, to the worker’s estate:

48      … from a financial perspective, the right to paid annual leave acquired by a worker is purely pecuniary in nature and, as such, is therefore intended to become part of the relevant person’s assets, as a result of which the latter’s death cannot retrospectively deprive his estate and, accordingly, those to whom it is to be transferred by way of inheritance, from the effective enjoyment of the financial aspect of the right to paid annual leave.

With respect to horizontal disputes (like the Willmeroth v Broßonn controversy, whereas Bauer was a public employee), the reasoning of the Court was identical to that used in the Max Planck case [87-91]. Article 31(2) of the Charter can be invoked in disputes between individuals, possibly leading to the setting aside of domestic norms like those at issue in the main proceedings.

The Charter’s effect on domestic measures

The Charter has many functions. It guides the interpretation of EU law and serves as standard of legality of EU acts. It does not enlarge the competences of the EU at the expense of the member states, but binds their action when they act as agents of the EU. In this residual scenario, delimited by the sibylline “implement[ation of] EU law” notion of Article 51(1) of the Charter, the Charter should serve as standard of EU-legality of national measures. In other words, the Charter can preclude some national measures.

The Charter applying to state measures falling “within the scope of EU law,” (a formula sanctified in Fransson [21], and unsurpassably frustrating), the following circumstances can arise:

a)      EU law does not apply to the matter, so neither does the Charter;

b)      EU law applies to the matter, and precludes the domestic measure. The Charter applies too: it might also preclude the domestic measure (“double preclusion”) or not;

c)       EU law applies to the domestic measure, but does not preclude it. The Charter applies too, and likewise does not preclude it;

d)      EU law applies to the domestic measure, without precluding it. The Charter, which also applies, precludes the domestic measure.

In the scenarios a), b) and c), the Charter is irrelevant to the ultimate determination of EU-legality.

Only in scenario d) does the Charter show its teeth, doing its standard of review job fully. Exclusively in this scenario, an otherwise EU law-compliant measure can breach the Charter and, accordingly, might be set aside by domestic judges. To this day, scenario d) has never occurred in its garden variety. Never has been the case that, for instance, a national measure that justifiably restricts one fundamental freedom (and falls therefore under the scope of Treaty law, without being precluded thereby) was found to breach the Charter. This unlikely coincidence warrants a deeper analysis (but not here), because it suggests that the Court is discreetly keeping the Charter in a locked drawer, lest member states react like the German Constitutional Court reacted after Fransson. A low-profile use of the Charter – one that essentially emptied it of its post-Lisbon potential – is what the Court’s record shows in the last 9 full years.

However, there is a hybrid category of cases, halfway between scenarios b) (double preclusion) and d) above. The paid annual leave rulings of 6 November 2018 belong in this atypical group, insofar as they relate to horizontal disputes. As far as their bearing on vertical disputes, they are squarely b)-type rulings: the measures are precluded by the Directive, and the breach of the Charter is just redundant.

The discussion below, instead, focuses only on the horizontal dimension of these rulings.

Did the Directive apply?

That the Directive applied must be assumed – otherwise the Charter would not have applied at all. Yet, the Directive could not apply to determine the outcome of the underlying dispute, for lack of horizontal direct effect. Can it be said that the Directive applied, and precluded the national measures, but was ineffective? The (ineffective) application of the Directive to the underlying scenario would then warrant the (very effective) application of the Charter. The Charter alone would warrant the disapplication of the German norms that breached both the ineffective Directive and the effective Charter.

The easier construction – that the Directive, lacking horizontal direct effect, could not apply – is untenable. Admitting that the Directive did not apply contradicts the notion that the German law fell within the “scope” of EU law, and would rule out the relevance of the Charter tout court. Some finer reasoning must support the Court’s decision. I suggest a couple of unnoticed distinctions that might help.

Direct application is not the same as direct effect: This is an all-time favourite for mid-term exams, so why not give this distinction a day in Court? Perhaps, the Directive did apply somehow (direct applicability), but could not be relied upon in domestic proceedings (lack of horizontal direct effect). This would explain the triggering of Article 51(1) of the Charter, but also the impossibility to use the Directive to solve the disputes between Mr Shimizu and Mrs Broßonn and their employers. Certainly the Directive applied, somehow. As soon as the transposition period expired, it deployed its legal obligatory effects and, even regarding horizontal disputes, triggered immediately Germany’s responsibility for failure to transpose correctly, which individuals can invoke to seek compensation without recourse to any implementing measure.

On the lack of direct effect, there is no real mystery: Article 7 of the Directive creates a precise and unconditional right, capable of invocation in domestic proceedings, so the direct effect checklist is in order. However, it can only work in vertical disputes. This distinction between direct applicability and direct effect could justify the Court’s truncated use of the Directive (sort-of applying to bring the Charter in under Article 51(1) of the Charter; not-really applying in its own right).

Scope of application is not the same as application: This is a contrived distinction, but it might operate in the background of these rulings. The Directive effectively cannot apply in domestic proceedings. However, the German law falls under the “scope” of the Directive, in a somewhat more abstract sense, as if applicable and applied were distinguishable. To accept that EU law reaches further than the circumstances to which it can actually apply is a head-scratcher. Yet, that is what the Court prescribed: domestic law must be set aside for intruding in an area that the Directive could not operate (the direct regulation of duties between private parties) but it nevertheless occupied – somehow. In the wake of Kücükdeveci (an earlier judgment on discrimination in employment), I noted the risk:

… it is necessary to evaluate the implications of Kücükdeveci: if the general principle of non-discrimination has a wider scope than the measures codifying it (the Directive), it follows that it can be invoked in a series of disputes that, despite concerning EU-regulated matters, fall outside the scope of the Directive.

Putting lipstick on Mangold

The distinctions above are nowhere mentioned in the rulings. So, if the Directive could not operate in domestic proceedings, how did the Court justify German law falling under the scope of EU law? This week’s rulings proffer only minimal reasons, but summon precedents to convey the idea that this apparent misalignment is nothing to worry about. From Bauer:

53           Since the national legislation at issue in the main proceedings is an implementation of Directive 2003/88, it follows that Article 31(2) of the Charter is intended to apply to the cases in the main proceedings (see, by analogy, judgment of 15 January 2014, Association de médiation sociale, C‑176/12, EU:C:2014:2, paragraph 43).

If one goes down the rabbit hole of cross-citations, however, Mangold awaits on the bottom. In terms of legal reasoning, it does not get any more controversial than Mangold. The judgment exasperated the former president of the German Constitutional Court and drafter of the Charter, who penned an op-ed wishing the Court of Justice to “Stop.” Ultimately, Mangold was criticised for encroaching into the Member States’ competence.

There are, in fact, a series of cases in which the Court prescribed the horizontal direct effect of a fundamental right, using a directive as a trampoline. Mangold was the first case, and Kücükdeveci followed. Dansk Industri (discussed here), also on discrimination on grounds of age, pulled the same trick, this time using the Charter rather than a general principle of law. AMS (discussed here) replicated the reasoning with respect to the workers’ right to consultation and information in the Charter, accepted its applicability but concluded that the Charter’s norm was not self-executing and stopped short of confirming its horizontal direct effect.

Egenberger (discussed here), very recently, asserted the horizontal effect of the right to non-discrimination on grounds of religion and the right of effective access to justice. In IR (discussed here), the Court consolidated Egenberger, and wisely recalled that non-discrimination is essentially a general principle: if the AMS explanation why the Charter applies to individuals were not compelling, the unwritten source might apply more liberally and come to the rescue just like in the good Mangold days:

69           Before the entry into force of the Treaty of Lisbon, which conferred on the Charter the same legal status as the treaties, that principle derived from the common constitutional traditions of the Member States. The prohibition of all discrimination on grounds of religion or belief, now enshrined in Article 21 of the Charter, is therefore a mandatory general principle of EU law and is sufficient in itself to confer on individuals a right that they may actually rely on in disputes between them in a field covered by EU law.

Conclusion

In all the cases mentioned, individuals could not rely on the directives in domestic proceedings. Yet, each directive somewhat marked the “scope” or “cover[age]” of EU law and let the fundamental right finish the work (unless some ingrained deficiency made it non self-executing, as in AMS). The simple annotation that the German law “is an implementation of [the] Directive” sanded over the uncomfortable truth: if the Directive was insufficient to set aside the norms of German law, perhaps these norms of German law lay outside the scope of EU law, and the Charter should not have found its way in the proceedings.

A sceptical reader might wonder what “a field covered by EU law” means, and wonder whether the Charter spilled over from the EU-law scope comfort zone. An optimist one can celebrate the expansive force of social rights. Horizontal application of fundamental rights translates into the creation of EU-based fundamental duties, and lets us catch a glimpse of solidarity in the making.

Barnard & Peers: chapter 9, chapter 20, chapter 6

Photo credit: PureTravel

Does EU law protect gig economy workers? Tensions in the CJEU’s case law

Dr Maria Tzanakopoulou, Teaching Fellow, King's College London and University College London

BACKGROUND

The gig economy is on the rise precipitating much discussion about working conditions –from working time to remuneration and from maternity and paternity protection to the all important classification of individuals working in the gig economy pool (see, eg, here and here). The case of King marks the debut of CJEU judgments related to the regulation of business conduct and worker’s rights in the gig economy. Here, the CJEU upholds the right of a self-employed worker to indeterminately carry over entitlements deriving from unexercised paid leave, while it protects Mr King’s right to an effective remedy before the courts. The story continues with the Court’s much debated Uber decision (discussed here), which reportedly blows in the face of businesses and becomes a stepping stone to more comprehensive protection of the gig economy worker (here). Perhaps somewhat surprisingly for those familiar with the Court’s often dismissive approach to labour rights (see, eg, here), the CJEU now seems, at least at first sight, reluctant to leave the gig economy unregulated and to turn its back on gig economy labour forces.

Very briefly, the Court in Uber classifies the company as a provider that ‘offers urban transport services’ [para 38] rather than as a mere intermediary between drivers and clients, as the company itself maintains. The tangible effect of this decision is the subordination of Uber to national regulatory measures. A less visible corollary of the case will be Uber’s increased responsibilities towards its drivers. The case of King, touching as it does upon the crucial matter of paid leave, has a more visible effect on workers. So much so, that the press was quick to present the decision as a breakthrough for gig economy workers at large (here). However, the extent to which the case makes headway in bringing gig economy workers as a whole under the protective ambit of employment rights is a matter that is not entirely straightforward.

FACTS

Mr King worked as a salesman for a company installing doors and windows (SWWL) from 1999 until his dismissal, brought into effect on the day of his 65th birthday, in 2012. According to his contract, a self-employed commission-only contract, Mr King was paid on the basis of the sales he concluded. His right to paid leave was unclear, as the contract was silent on that matter. In his Opinion, AG Tanchev reports that Mr King was in the meantime offered an employee contract, which would bring him into the sphere of full-blown worker protection, but he opted for carrying on his work on a self-employed basis. (Mr King later objected that the AG misunderstood the particular incident, but we lack further clarification, as the Court did not consider it necessary to reopen the oral procedure for what it apparently saw as a matter of secondary importance.)

Upon his dismissal in 2012, Mr King brought his case to the Employment Tribunal. Mr King succeeded in his claims that the dismissal was grounded upon discrimination on the basis of age and that he satisfied the definition of ‘worker’ for the purposes of the UK Working Time Regulations, implementing Directive 2003/88 (the ‘working time Directive’. The Employment Tribunal further found that Mr King was entitled to recover the sum of his untaken paid leave for his final year with SWWL, as well as the sum amounting to holiday he had taken from 1999 until 2012 and which had remained unpaid throughout his thirteen years of work.

So much remained undisputed by SWWL. However, the Employment Tribunal’s final finding, namely that Mr King was further entitled to recover the sum for any leave not actually taken during his work with SWWL, was appealed to the Employment Appeal Tribunal (‘EAT’). The latter accepted the appeal and passed the case back on the Employment Tribunal for reconsideration. According to the EAT’s line of argument, King would have to first take (unpaid) leave and subsequently raise a claim related to payment of that leave. This finding was primarily based on Regulation 13(9) of the domestic implementing legislation, which establishes that leave can only be taken in the relevant leave year and, if not, it cannot be replaced by payment in lieu, unless employment has been terminated. Regulation 30 further establishes that ‘[a] worker may present a complaint to an employment tribunal that his employer’ has either not allowed him annual leave or ‘has failed to pay him the whole or any part of any amount due to him’ in respect of annual leave. Logically then, failure to pay shall precede any complaint presented. The time limit for the complaint, laid down in Regulation 30(2)), is set at three months after the claim arises or at whatever period the tribunal considers appropriate where ‘it was not reasonably practicable for the complaint to be presented’. When that complaint is not presented in time then any entitlement, and in this case Mr King’s entitlement, shall be lost.

Mr King was of a different opinion. As failure to take annual leave was a direct result of his employer’s refusal to pay, the relevant rights were carried over from year to year until his termination of employment. His claim was therefore brought in time.

The EAT’s decision was, thus, appealed to the Court of Appeal, which referred five questions, of both a procedural and a substantive nature, to the CJEU. In a nutshell, the Court of Appeal asked whether the ‘use it or lose it’ approach of the Regulations is compatible with the right to an effective remedy. The question targeted the EAT’s interpretation that a worker can bring a complaint only upon taking leave, which the employer refuses to pay. The Court further asked if the right to paid leave carries over beyond the relevant leave year, in cases where non-exercise of that right is caused by the employer’s refusal to pay. If so, how long does that right carry over for?

THE COURT

The CJEU commenced on its assessment by emphasising the social significance of the right to paid leave. The Court was quick to bring the EU Charter of Fundamental Rights into its reasoning, referring in particular to article 31(2), which lays down the right to paid annual leave. The purpose of Directive 2003/88 read in the light of the Charter is to allow the worker to enjoy annual leave under conditions of remuneration comparable to those of working periods: the right to paid leave cannot be ‘subject to any preconditions whatsoever’ [para 33]. If leave itself or remuneration become uncertain as a result of the employer’s conduct, then the right is in jeopardy.

On the basis of the above, the CJEU rejected the EAT’s interpretation of the Regulations as incompatible with the Directive: ‘in the case of a worker in a situation such as that of Mr King, if the national remedies are interpreted as indicated [by the EAT], it is impossible for that worker to invoke, after termination of the employment relationship, a breach of Article 7 of Directive 2003/88 in respect of paid leave due but not taken, in order to receive the allowance referred to in paragraph 2 of that article. A worker such as Mr King would thus be deprived of an effective remedy’ [para 46]. As such, a complaint cannot be exclusively available after the employer has refused to pay for a leave already taken. This is so, despite the fact that the Directive itself is silent on remedies, not least because the Charter enshrines the right to an effective remedy in article 47 [para 41].

With respect to a worker’s ability to carry over paid annual leave rights, the Court first recognised that Mr King did not exercise his rights for reasons beyond his control. Whether or not Mr King was in the meantime offered employee status was irrelevant for the CJEU, which looked at the worker’s status as it ‘existed and persisted’ until retirement, whatever the reason for that status may be [para 50]. According to the Court’s settled case law on absence due to sickness, allowance in lieu should be available to those unable to exercise paid leave rights for reasons beyond their control. However, a carry over limit of fifteen months should be equally acceptable, given that the Court also has regard to ‘the protection of employers faced with the risk that a worker will accumulate periods of absence of too great a length and the difficulties in the organisation of work which such periods might entail’ [para 55]. The question thus came down to whether Mr King’s situation was comparable to absence due to sickness.

The Court here noted that ‘protection of [Mr King’s] employer’s interests does not seem strictly necessary’ [para 59], especially in light of the need for the right to paid leave to be interpreted broadly:

‘It must be noted that the assessment of the right of a worker, such as Mr King, to paid annual leave is not connected to a situation in which his employer was faced with periods of his absence which, as with long-term sickness absence, would have led to difficulties in the organisation of work. On the contrary, the employer was able to benefit, until Mr King retired, from the fact that he did not interrupt his professional activity in its service in order to take paid annual leave’ [para 60].

The Court concluded that ‘an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences’ [para 63], which in this case amounted to the sum due for all leaves untaken by Mr King over the years.

COMMENT

At the outset, King is a case that gives recognition to a significant employment right and should be welcome on that ground alone. The Court did not shy way from stretching the outer limits of the right to paid leave and fired straight at the employer. In symbolic terms, the case seems equally interesting, with the CJEU’s diction hinting at a robust defence of what the Court calls ‘EU social law’ against the interests of the employer.

Reliance on the Charter as a leg-up in the Court’s broad interpretation of the right is also interesting, albeit, I think, not necessarily decisive for this case. The point of a purposive interpretation, like the one pursued by the Court here, is precisely that it needs not rely on text (see here). The Court could have decided much the same without the Charter’s assistance. That said, the decision is a harsh message to businesses engaging freelancers or generally workers that lack employee status.

Nevertheless, the significance of King for gig economy worker rights at large should not be overestimated. The grand scheme of things suggests that, whereas workers in the gig economy can win the small individual battles before the Court, the CJEU is unwilling to open up the way to wide-ranging protection.

To begin with, Mr King’s worker status was not under dispute, thus disburdening the CJEU of examination of the personal scope of the right to paid leave. In other words, the Court did not discuss applicability of that right to gig economy workers as such. As the AG notes in his Opinion, the case was effectively concerned with the essence, rather than the existence, of the right [para 30]. In light of this, it could be argued that the Court’s primary concern was to interpret the right and only at a secondary level to protect the gig economy worker. Certainly, the specificities of the case, and of Mr King’s situation, render this a consequential decision for many workers in the gig economy. Nevertheless, the extent to which the relevant legislation will cover a gig economy worker remains contingent upon each individual worker’s exact employment status.

What is perhaps more important is that, once King is compared to the Court’s approach to collective labour rights in the gig economy, the picture becomes even less promising.

Indeed, the social dimension of employment rights emphasised in King appears to be neglected in cases dealing with collective labour rights of the gig economy worker. It is now established case law of the Court that collective bodies representing self-employed workers pursue an economic activity and are therefore caught by the restrictive framework of competition law rules (see Pavlov). This is so, the Court has aegued, despite these bodies’ pursuit of a social objective [Pavlov, para 118]. The importance of Pavlov is put down not to the specific facts of the case but to the Court’s refusal to invest a body representing self-employed workers with equal protection as, eg, collective bargaining agreements between employers and employees (see, eg, Albany).

On the contrary, the Court has noted that ‘the Treaty contains no provisions (…) encouraging the members of the liberal professions to conclude collective agreements with a view to improving their terms of employment and working conditions (…)’ [para 69]. Worse even, in the more recent FNW Kunsten, the Court declared in unequivocal terms that ‘in so far as an organisation representing workers carries out negotiations acting in the name, and on behalf, of those self-employed persons who are its members, it does not act as a trade union association and therefore as a social partner, but, in reality, acts as an association of undertakings’ [para 28] and therefore falls within the scope of competition law rules.

All things considered, the Court appears to be adopting double standards. It is ready to recognise the social significance of the right to paid leave of an individual freelancer, yet it stops short of shielding the right of the self-employed worker to collective bargaining.

One way forward, then, would be for the Court to recognise individual rights piecemeal, as in King. Another way would be for individuals to rely on the courts, European or domestic, for an inclusive approach to self-employed workers, as in Aslam. Here, the worker status of Uber drivers, recognised by the Employment Tribunal and upheld by the EAT, placed these individuals within the protective ambit of the National Minimum Wage Act and the Working Time Regulations. Like Mr King, the status of Uber drivers as workers for the purposes of these pieces of legislation is now beyond dispute. It is, however, doubtful whether any of the above would be able to negotiate their salary or pension through collective bargaining free from the burden of EU competition law rules. A third way forward would perhaps be for the CJEU to recognise the social significance of bargaining rights and to guarantee them for gig economy workers. Only then, I think, will it be justified to say that the war was won.

King wins a battle but the war is ongoing: when an employment right can be defended individually before the court, but not collectively in the field –even where that right is upheld– I shall remain hesitant to ring victory bell for gig economy workers.

Barnard & Peers: chapter 20

Photo credit: euractiv.com

Workers Rights: the Brexit Bonfire Begins?

Professor Steve Peers, University of Essex

Parallel reports in the Sunday Times and the Sun suggest that the government is planning to scrap the EU working time Directive in the UK as soon as it can after Brexit takes effect. This violates the government’s previous pledges and is justified by highly misleading claims in The Sun.

First of all, it violates a clear pledge that Theresa May made regarding workers’ rights in her Lancaster House speech setting out her Brexit policy.  Point 7 reads:

…a fairer Britain is a country that protects and enhances the rights that people have at work. That is why, as we translate the body of European law into our domestic regulations, we will ensure that workers rights are fully protected and maintained.

Indeed, under my leadership, not only will the Government protect the rights of workers set out in European legislation, we will build on them

Secondly, it seems that this plan might be accompanied by a misleading attempt to suggest that it makes workers better off. According to the Sun headline, scrapping the Directive will allow more workers to claim overtime: “British workers set for post-Brexit overtime boom as ministers plot to scrap EU limits”.

More precisely, the article claims: “The Tories won an opt-out in 1993 but Labour MEPs voted to end the UK’s right to break the limit in 2003.” The first part of this sentence is accurate: the original Directive (amended to apply to more workers in 2000, then codified in 2003) gives each Member State the option to let workers decide to opt out individually of the usual average limit of 48 working hours a week, on the condition that they are not subject to any ‘detriment’ by the employer if they opt not to do so (see Article 22 of the 2003 version). Indeed, a study by Barnard, Deakin and Hobbs showed that as a result, the Directive had little impact on the UK’s long working hours.

However, the second part of the sentence is highly misleading. Along with the rest of the article, it gives the reader the impression that each worker’s individual opt out to work over 48 hours a week on average no longer exists. This is not true: a 2004 proposal to amend the Directive to (among other things) limit use of the opt-out failed in 2009 due to disagreements between the European Parliament and the EU Council. Employers and unions then failed to agree on amendments in 2013.

This continued use of the overtime opt-out is confirmed by a report on the Directive from the EU Commission earlier this year: 18 Member States use this option, and the UK is one of six Member States which allow workers in every sector of employment to choose to work extra hours. You can find the option in the UK’s Working Time Regulations, which transpose the Directive into UK law (it’s Regulation 5). In practical terms, a recent TUC analysis estimates that over 3 million UK workers work over the 48-hour average limit. Moreover, contrary to the implied promise of extra pay in the Sun article, many of those additional working hours are unpaid.

Thirdly, not only does the Directive not prevent workers from earning overtime pay if they choose to (assuming their employer pays them extra for those additional hours), it guarantees them important rights too. Daily working hours are limited to a maximum of 13; there must be a rest break if the working day is longer than 6 hours; workers must get at least one day off a week; and there are guarantees for night workers. There’s no possibility of opting out of these rights for workers, but there is a lot of flexibility for Member States or employers, for instance to exempt certain jobs from these guarantees or to calculate the limits over a longer period, to take account of (say) longer shopping hours in the weeks before Christmas.

Most notably, the Directive guarantees four weeks’ paid holiday every year, with no opt-outs or exceptions. It’s sometimes argued that the Directive added nothing to pre-existing UK law, but the case law on the holiday pay clause in the Directive suggests otherwise. The cases that went from the UK courts to the ECJ on holiday pay established that: fixed-term workers have a right to pro-rata holiday pay; employers couldn’t in effect reduce holiday pay by ‘rolling it up’ in each pay packet across the year; workers paid partly or wholly on commission must receive holiday pay that takes account of their average commission; holiday pay must take account of extra allowances regularly paid to workers; workers who missed holiday pay due to long-term sickness can claim that pay later, subject to time limits; but ‘gig economy’ workers who had been wrongly classified as ‘self-employed’ could claim such accrued holiday pay without any time limit.  

Put simply, far from increasing workers’ pay, scrapping the working time Directive would reduce that pay for many of them. It’s unfortunate that while most journalists aim to speak truth to power, some seem content to mislead on its behalf.

If the mooted plans go ahead, this would prove that the Conservative party’s pledge to retain all workers’ rights derived from EU law was worthless. Perhaps the government’s reported lack of integrity is unsurprising, in light of Theresa May’s promise that there would be no early election. But breaking that promise ultimately only made her own working conditions worse; breaking her promise on workers’ rights will make those conditions worse for millions of others.

Barnard & Peers: chapter 20

Photo credit: Telegraph

Rights, remedies and state immunity: the Court of Appeal judgment in Benkharbouche and Janah

Steve Peers

Yesterday’s important judgment in Benkharbouche v Sudan and Janah v Libya by the Court of Appeal raised important issues of public international law, the ECHR and the EU Charter of Fundamental Rights, and demonstrated the relationship between them in the current state of the British constitution. The case involved two domestic workers bringing employment law complaints against the respective embassies of Sudan and Libya, which responded to the complaints by claiming state immunity, based on a UK Act of Parliament (the State Immunity Act) which transposes a Council of Europe Convention on that issue.

The question is whether invoking state immunity for these employment claims amounted to a breach of human rights law, given that Article 6 of the ECHR (the right to a fair trial) guarantees access to the courts, according to the case law of the European Court of Human Rights (ECtHR). In turn, this raised issues of EU law, given that Article 47 of the EU Charter of Fundamental Rights likewise guarantees the right to a fair trial, and some of the claims concerned EU law issues (the race discrimination and working time Directives). (Other claims, such as for ordinary wages and unfair dismissal, were not linked to EU law). The two cases didn't concern human trafficking or modern slavery, although sometimes embassies are involved in such disputes too. But they would be relevant by analogy to such disputes, and there would also be a link to EU law in such cases, since there is an EU Directive banning human trafficking, which the UK has opted in to. 

The Court of Appeal, essentially following the prior judgment of the Employment Appeal Tribunal, made a careful study of recent ECtHR case law, concluding that state immunity could no longer be invoked against all employment law claims, but only against those claims concerning core embassy staff. This could not apply to domestic workers; Ms. Janah’s tasks did not involve (for instance) shooting any British policewomen.

But what was the remedy for this breach of human rights principles? At lower levels, the tribunals had been powerless to rule on the claims for breach of the ECHR, since the UK’s Human Rights Act awards the power to issue a ‘declaration of incompatibility’ that an Act of Parliament breaches the ECHR to higher courts only. So the Court of Appeal was the first court that could issue such a declaration, and it did so in this case. (The Court concluded that it could not ‘read down’ the relevant clauses in the State Immunity Act to interpret them consistently with the ECHR).

However, as compared to the effect of EU law, even a declaration of incompatibility with the ECHR is relatively weak, given that the potential remedy for a breach of EU law is the disapplication of national law, even Acts of Parliament if necessary, by the national courts. So the Court of Appeal also ruled that the relevant provisions of the State Immunity Act had to be disapplied, to the extent that they were applied as a barrier to the claims based on EU law. On this point, the Court was following the Employment Appeal Tribunal, which had also ruled to disapply the Act, given that any level of national court or tribunal has the power to disapply an act of parliament if necessary to give effect to EU law.

If I had a pound for every law student who has confused the remedies in UK law for the breach of EU law with the remedies for the breach of the ECHR, I would be very rich indeed. Fortunately, the facts of this case easily demonstrate the distinction between them. Only the higher courts could even contemplate issuing a declaration of incompatibility with the ECHR; and the remedy of disapplication of the Act of Parliament is obviously stronger than the declaration of incompatibility, allowing the case to proceed on the merits (as far as it relates to EU law) rather than having to wait for Parliament to change the law in order to do so. And equally, the case shows the importance of the requirement that a case has to be linked to EU law in order for the Charter to apply: only the race discrimination and working time claims benefit from the disapplication of provisions of the Act of Parliament, and so only those claims can proceed to court as things stand.

From an EU law perspective, the most interesting point examined by the Court of Appeal was the application of the ‘horizontal direct effect’ of Charter rights, ie the application of EU law against private parties (since non-EU States aren’t bound by EU law as States, the court assimilated them to private parties). In its judgment last year in AMS (discussed here), the CJEU distinguished between those Charter rights which could give rise to a challenge against national law based on the principle of supremacy of EU law, and those Charter rights which could not, since they were too imprecise to base a free-standing Charter claim upon. The right to non-discrimination on grounds of age fell within the former category, whereas the right of workers to be consulted and informed fell within the latter category. (Note that the CJEU case law classifies this as an application of the principle of supremacy, not horizontal direct effect, although the final outcome is the same no matter how the principle is classified, at least in cases like these).

The Court of Appeal reaches the conclusion that Article 47 of the Charter is also a provision which is precise enough to be used to challenge national legislation. That’s an important point, since Article 47 is a far-reaching and frequently invoked provision, and applies not just to state immunity issues but to many broader issues concerning access to the courts (including legal aid) and effective remedies.  For that reason, this judgment is an important precedent for national courts across the European Union faced with challenges to national laws based on Article 47 of the Charter, although of course it doesn’t formally bind any court besides the lower courts of England and Wales.

The Court didn’t need to rule on whether the substantive Charter rights raised by these cases would have the effect of disapplying national law, since it wasn’t ruling on the merits of the cases, but only on the issue of access to court. If it were ruling on the substantive issues, it would seem obvious that race discrimination claims have the same strong legal effect as age discrimination claims, as both claims are based on the same provision of the Charter (Article 21). However, claims based on breach of Article 31 of the Charter (the working time provision) might not have that strong legal effect. Indeed, an Advocate-General’s opinion in the pending case of Fennoll has concluded as much.

Furthermore, the social rights in the Charter (such as the rights set out in Article 31) are subject to a special rule in the Protocol to the EU Treaties which attempts to limit the effect of the Charter in the UK and Poland. The CJEU ruled in its NS judgment that this Protocol does not generally disapply the Charter in the UK, but it did not then rule if the Protocol might nonetheless affect the enforceability of social rights. Given that yesterday’s judgment was about Article 47 of the Charter, not about a substantive social right, it was not necessary for the Court of Appeal to grasp this nettle either.

Barnard & Peers: chapter 9, chapter 20

“I’ll rest when I’m dead”: the CJEU rules that holiday pay can be inherited

 

Steve Peers

Unfortunately, all of us have to die someday. More unfortunately still, some people die during their working life, without having a chance to enjoy a well-earned retirement. This raises (among many other things) the question of whether their employment law rights can be inherited.

EU law does not regulate the substantive inheritance law of each Member State. However, EU law does apply where there are cross-border aspects to an inheritance, as regards taxation (where the free movement of capital could be relevant) and as regards the choice of law and civil jurisdiction (which is subject to a Regulation applicable from 2015).

But what about employment law and inheritance? EU law has regulated a number of aspects of employment law, but does not specify what happens in the event of death. This CJEU has now ruled that, at least as regards the right to annual leave pursuant to the working time Directive, employment law rights can be inherited.

The judgment

Article 7(1) of the working time Directive states that every worker is entitled to at least four weeks’ paid leave, ‘in accordance with’ national conditions for entitlement and granting of leave. Article 7(2) states that this minimum period ‘may not be replaced by an allowance in lieu, except where the employment relationship is terminated’.

Previous CJEU judgments in cases such as Schultz-Hoff and Stringer, established that where workers cannot take their annual leave due to sickness, the right to four weeks’ paid annual leave accrued pursuant to the Directive had to be carried over. In the Bollacke judgment, the worker died after a long sickness. When he died, 140 days’ leave was due to him, and his wife (his sole heir) claimed that she had inherited this entitlement.

Although the national legislation implementing the Directive was silent on the issue of whether the allowance in lieu for unused holidays could be inherited, the higher German courts had ruled that it could not. So a lower German court asked the CJEU to interpret the Directive on this point.

According to the Court, the allowance could be inherited. It began by reiterating that paid holiday was a ‘particularly important principle’ of EU social law from which there is no derogation. Crucially, it asserted that the holiday and the payment for it were ‘two aspects of a single right’. Next, Article 7(2) of the Directive did not contain any conditions besides ending employment and having accrued holiday pay. Finally, inheriting the right to accrued holiday pay was essential to ‘ensure the effectiveness’ of the right, because otherwise an ‘unintended occurrence…beyond the control of both the worker and the employer’, would extinguish that right.

Also, the national court had asked whether the worker had to make an application first in order to obtain the back pay. The CJEU reiterated that Article 7(2) of the Directive did not provide for extra conditions, so no such requirement could be applied.

Comments

The Court’s judgment could have consequences for the interpretation of other EU employment law, and even for EU law more generally. While the Court confines its interpretation to a specific provision of the working time Directive, its judgment could form the basis for a prima facie argument that rights can be inherited pursuant to other EU employment law. Most obviously, this reasoning would apply to back pay due pursuant to the Directive on insolvent employers, and to compensation relating to any breach of other EU health and safety legislation – recalling that the working time Directive forms part of that corpus of legislation, and that the death of the worker might in fact have resulted from such a breach.

The Court’s focus on the effectiveness of the legislation concerned is a general point, and this means that this argument could be taken further, for instance as regards compensation due for breach of the EU’s non-discrimination legislation. This reasoning would equally apply as regards consumer law, a fortiori in cases (for instance, a breach of the product liability directive) where a breach of EU law again led to the person’s death directly.

As for the working time Directive itself, the Court’s insistence that no added conditions could be placed upon the right to accrued holiday pay means that such pay must be granted not only where the worker’s employment ended in the ordinary course of events (due to redundancy, retirement or voluntary departure), but also where the employee was dismissed for cause. This might certainly rankle employers in the case of those former staff members who treated every day as a holiday, or upset the general public in the event of an employee ‘going postal’.

In this context, the Court’s reference to death as an ‘unintended consequence’ beyond the worker’s and employer’s control is unhelpful, since it suggests that there might be cases where accrued holiday pay would not be payable on death. Of course, some workers commit suicide, and some appalling employers are responsible for workers’ deaths. Logically, the back pay should also be payable in both those circumstances (particularly the latter).

How can this judgment be enforced? As noted above, the problem in this case was created by national case law, not legislation, so it will be possible to remedy the problem by means of ‘indirect effect’, ie the national court interpreting that national law to be consistent with the Directive. In Member States where the law expressly limits inheritance of holiday pay, the Directive will be directly effective against public sector employers, but not against private sector employers.

In the latter scenario, workers’ heirs will have to seek compensation from the State based on the Francovich judgment, unless it can be argued that Article 31 of the EU Charter of Rights can be used to suspend the national law in question. The CJEU recently clarified whether the Charter can be used against employers indirectly in this way in the AMS judgment, but in today’s opinion in Fennoll an Advocate-General has rejected the idea as regards Article 31. Time will tell whether the Court accepts this analysis; but it is notable that today’s judgment makes no mention of the Charter at all.

The Court’s ruling that the worker cannot be expected to make a prior application for accrued holiday pay makes sense if one accepts its key finding that such pay can be inherited. It would be unreasonable to expect an employee to make such a claim while seriously ill, and it would simply be impossible in the event of the worker’s sudden death.

So this brings us to the Court’s key finding: does it make sense to say that accrued holiday pay can be inherited? While today’s judgment glosses over this, in previous cases (most recently Lock) the Court of Justice has emphasised strongly the importance of the worker receiving full holiday pay as an incentive to take the holiday, in order to get the rest which the Directive provides for, which is meant to guarantee the worker’s health. But obviously, deceased workers can no longer get the type of rest which the Directive refers to. Having insisted so strongly on the link between the pay and the holiday, the Court now insists on the severability of the two aspects of the right.  

Moreover, as usual the Court ignores the reference in Article 7(1) of the Directive to national conditions for eligibility and grant of holiday pay. Some prior case law does accept that limits can be placed on the carry-over of holiday pay, and therefore upon the accrued pay that can be claimed upon termination of employment. But the Court makes no specific mention of that case law (the KHS judgment) here.

So, with great respect, the Court’s judgment is not terribly convincing in terms of the wording and purpose of the Directive. Nor does the Court explain its reasoning very well in light of prior case law.

But having said that, no one would begrudge Mrs. Bollacke (and others in her situation) from receiving a modest amount of extra inheritance following her bereavement. The judgment is unlikely to have an enormous impact on employers, since most workers live to retirement age. And the ruling can be justified in the broader context of the relationship between workers and employers, since it prevents an unscrupulous employer, knowing that a worker is terminally ill, from artificially delaying proceedings in the hope that the worker’s claim will expire along with the worker.

 

Barnard & Peers: chapter 20

Salesman’s Holiday: the CJEU clarifies the calculation of holiday pay

By Steve Peers

While the EU’s Working Time Directive is often criticised in the UK, there are surely some workers who welcome (among other things) the four weeks’ annual paid leave which are guaranteed by the Directive – particularly if they would not otherwise receive it.  More particularly, for anyone who works on commission, yesterday’s CJEU judgment in Lock resolved an important issue affecting the calculation of their holiday pay.

Commission payments can often make up a large proportion of a worker’s income, and this is particularly manifest in Mr. Lock’s case. During 2011, his basic salary (£1222 a month) was well below the national average. But after adding commission (averaging £1913/month), his total salary (averaging £3135/month) rose well above it.

EU law does not regulate the level of workers’ salaries as such. But Article 7 of the working time Directive states that every worker must receive four weeks’ annual paid leave ‘in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice’.

While this wording seems to leave a lot of discretion to Member States, the CJEU has always circumscribed that discretion tightly in light of the importance of this social right (now set out in Article 31 of the EU Charter of Fundamental Rights). The right cannot be denied to fixed term-workers (BECTU) or to persons on maternity leave (Merino Gomez). It can be carried forward if a person is on long-term sick leave (Schultz-Hoff), but Member States still retain some power to limit this (KHS). As for the calculation of the pay, it cannot be ‘rolled-up’ across each month’s salary (Robinson-Steele), and must take into account various pay supplements (Williams).

But does that requirement to take pay supplements into account apply also to commission? A few years back, the Court of Appeal of England and Wales said that it didn’t. But according to the CJEU in Lock, building on its prior case law, it did. Furthermore, the Court clarified how to calculate that commission. Applying the Williams judgment by analogy, the Court ruled that Mr. Lock’s commission was ‘directly linked to his work’ within the company, and so was linked to the ‘performance of his tasks’. So it had to be paid during his annual leave, just like allowances related to ‘seniority, length of service and…professional qualifications’. In contrast, payments which ‘are intended exclusively to cover occasional or ancillary costs’ do not have to be paid to workers during their annual leave.

Comments

This judgment will certainly be welcome for workers who receive commission payments, in particular if they do not already get those payments while on holiday. Likewise, it will be unwelcome for their employers. But it’s not really much of a surprise in light of the general tenor of the CJEU’s judgments on annual leave and the working time Directive, going back nearly 15 years now.  

There is still a very residual role left for national law in this case: the CJEU says that national law can determine the period which is considered to be ‘representative’ for the purposes of calculating the worker’s average commission. So the employee cannot insist on selecting the period when his or her commission was particularly high; but nor can the employer limit the effect of the ruling by insisting upon a reference period when the commission was lower than usual.

Given that the CJEU consistently limits the possible discretion of Member States applying the Directive, the question again arises what happens if there is a dispute with a private employer regarding working time and the national legislation in question cannot be interpreted consistently with the Directive. The CJEU ducked this issue in Dominguez, but it arises again in Fenoll, where the Advocate-General’s opinion is coming in June.

In the meantime, in the AMS case, the Court has begun to clarify the legal effect of the EU Charter as regards private parties. The practical importance of the working time Directive surely requires that the CJEU has to give a proper answer to this question, at least as regards Article 31 of the Charter. 

Barnard & Peers: chapter 9, chapter 20